Certified Check

Source:  Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

A check that certifies that the signature of the drawer is genuine and that the depositor has sufficient funds on deposit for its payment.  The amount certified is then set aside for the express purpose of paying the check and payment cannot be refused because of insufficient funds.  When a bank certifies a check, certification is acceptance, i.e., the check becomes an obligation of the bank, instead of being an order on the bank.  It is incorrect, however, to say that the bank guarantees payment of the check.

The Uniform Commercial Code (Sec. 3-411(2)) now makes specific the point that unless otherwise agreed, a bank has no obligation to certify a check.  When a check is presented at the window for certification, the drawer’s account in the ledger is first inspected to see that sufficient funds are on deposit to cover the amount which is immediately deducted from the drawer’s deposit balance before the check is certified.  Certification consists of stamping or writing across the face of the check the word “certified” or “accepted”, together with the date, the bank’s title, and the signature of the officer authorized to make certification.

Since a certified check becomes an obligation of the bank, when a check is certified, the drawer’s account is reduced (charged) and the certified checks account in the general ledger is increased (credited).  When certified checks are returned through the clearinghouse or other channels, the certified checks account is reduced (charged).  Thus the balance of this account represents the total certified checks outstanding.

Although a bank is not obliged by law to certify checks for its customers, among the banks in the larger cities, especially in New York , certification business forms a very important service, especially for customers who deal in securities.  Certified checks are also extensively used in those types of businesses where it is important to receive the equivalent of cash, without at the same time using cash, such as in brokerage and security transactions, payments of loans, and real estate transfers.

A check may be certified at the instance of either the holder or drawer.  Where a holder obtains the certification, the drawer and all prior endorsers are discharged (Sec. 3-411(1), Uniform Commercial Code).  On the other hand, certification obtained by the drawer of the check still leaves him or her liable in the event the certifying bank should fail before the check is presented for payment.  A bank may certify a check before returning it for lack of proper endorsement, but it does so, the drawer is discharged (Sec. 3-411(3), Uniform Commercial Code).  

Back to Information